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MRPL: From strength to strength

Nov 22, 2004

Performance Summary
Mangalore Refineries and Petrochemicals Corporation (MRPL), a standalone refining subsidiary of Oil and Natural Gas Corporation (ONGC), posted robust earnings for 2QFY05 with the topline growth of over 66% YoY while the operating almost doubled from 5% to 9.9% YoY.

What is the company’s business?
MRPL is a standalone refining subsidiary of ONGC with HPCL holding a 17% stake in the company. The company has a refining capacity of nearly 9.7 MMT and caters to HPCL’s outlets in the southern markets. It has an in-principle approval to set up nearly 500 retail outlets and along with parent, ONGC, is likely to set up a LNG terminal and petrochemicals complex going forward.

(Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
Net sales 25,429 42,304 66.4% 47,254 84,687 79.2%
Expenditure 24,166 38,122 57.7% 45,378 77,285 70.3%
Operating profit (EBDITA) 1,263 4,182 231.1% 1,876 7,402 294.6%
EBDITA margin (%) 5.0% 9.9%   4.0% 8.7%  
Other income 39 93 135.2% 75 198 163.5%
Interest 1,061 587 -44.7% 2,110 1,256 -40.5%
Depreciation 949 952 0.3% 1,889 1,894 0.3%
Profit before tax (708) 2,735   (2,048) 4,451  
Tax (254) 1,050   (734) 1,646  
Profit after tax/(loss) (454) 1,686   (1,314) 2,805  
Net profit margin (%) -1.8% 4.0%   -2.8% 3.3%  
No. of shares (m) 1,752.6 1,752.6   1,752.6 1,752.6  
Diluted earnings per share (Rs)* (1.0) 3.8   (1.5) 3.2  
Price to earnings ratio (x)   12.0     14.4  
(* annualised)            

What has driven performance in 2QFY05?
High refining margins boosts performance: Post APM dismantling, Indian refineries have been able to improve realisations, as the value is linked to international product prices. If international prices of petrol and diesel increase, the realisation of MRPL also moves in tandem. The current uptrend in petroleum product prices has helped revenues surge and the company has been successful in capturing the same on the back of higher capacity utilization. To put things in perspective, the company processed 2.8 MMT of crude during the 2QFY05 as compared to 2.5 MMT during 2QFY04, resulting in a capacity utilization of 115%. This coupled with strong product prices, has benefited MRPL. But for the reduction of customs duties on certain petroleum products during the period, realisations could have been stronger.

Expenditure table
(%) of sales 2QFY04 2QFY05 1HFY04 1HFY05
Consumption of raw materials 90.9% 87.2% 92.8% 87.9%
Staff cost 0.3% 0.3% 0.3% 0.3%
Other expenditure 3.9% 2.6% 3.0% 3.1%

Operating margins improve: MRPL witnessed robust operating margins during 2QFY05 and was able to double it to nearly 10% as compared to 5% during the corresponding period previous fiscal. Although raw material prices increased, it was able to pass it on to the customers, as refineries realise import parity prices on the products thereby enabling a faster growth in revenues.

It all trickles down to the bottomline: All the above factors resulted in the company turning around a robust growth performance, whereby it had posted a loss during 2QFY04. Having said that, a 135% jump in the other income has helped further prop up the bottomline, while a nearly 45% drop in the interest outgo on account of the debt restructuring package has also helped.

Quarterly trends
(Rs m) 3QFY04 4QFY04 1QFY05 2QFY05
Sales 31,046 35,998 42,832 42,304
Op. Profit 1,210 4,348 3,221 4,182
(%) OPM 3.9% 12.1% 7.5% 9.9%
Net profit 397 5,512 1,119 1,686
(%) NPM 1.3% 15.3% 2.6% 4.0%

Quarter on quarter improvement:MRPL has come from strength to strength during the last four quarters as the synergies with ONGC have started to settle into the normal business activities. Stable crude supply coupled with the incidental firm product pricing has helped MRPL to turnaround within a year of its operations under the ONGC umbrella.

What to expect?
At Rs 46, the stock is trading at a price to earnings multiple of 12 times annualised 2QFY05 earnings. Given that the company is just settling down under the ONGC umbrella, this is likely to come down. MRPL is planning to venture into the downstream retail petro-products marketing segment, which is in line with the company’s forward integration plans. Also, with the financial strength of its parent, ONGC, MRPL has planned capacity expansion of nearly 3 MMTPA over the next few years. Refining margins are likely to stay firm for the current fiscal, and to that extent, MRPL is likely to be one of the major beneficiaries. The government’s policies on ONGC’s investments, however, could dampen prospects as projects might get delayed.


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